Hypothecation is a phenomenon that occurs mainly in mortgage lending. When a borrower pledges collateral, but still retains all rights, possession, title and enjoys all income generated through the asset, that is called Hypothecation. However, if the borrower fails to meet the repayment terms of the loan, the lender reserves the right to seize the asset. For instance, if a lender opts for a home loan from a bank, and buys a property, they will retain all rights to the house. If the borrower fails to repay the bank, the bank can then step in, and seize the rights to that house.